Thank you. The Oil and Money conference is one of the most important gatherings of our industry, and it’s an honor to join this global group today. I’m especially pleased to be here given that this year’s session opens with a focus on natural gas, which I believe is vital to our efforts to meet the world’s growing energy needs in a way that supports both economic and environmental objectives.
Our focus over the next two days is uncertainty, and how governments, industry and customers will adapt to a rapidly changing marketplace. It’s undoubtedly true that this era of abundance in natural gas, as well as a shifting policy landscape and changing customer expectations, demands new approaches from natural gas producers and marketers like ExxonMobil.
From our perspective, however, the transformation we’re seeing across the energy industry signals an era of opportunity for producers and consumers, both in developing nations and established markets.
To understand the full value natural gas provides and how it fits into the choices governments and societies are making about how to power their growing prosperity, it’s helpful to consider the world’s energy trilemma. This three-pronged challenge comprises providing enough energy to power a growing global economy, delivering that energy in ways that are affordable to consumers, and finally, safeguarding the environment for future generations.
That’s a tall order.
On the first point – meeting the world’s growing energy needs. This audience is well aware of the projections for population growth, a dramatic increase in the global middle class and a commensurate increase in energy needs. We estimate that the world’s growing prosperity will equate to a 25 percent increase in energy demand over the next quarter-century. That’s the energy equivalent of an additional 68 million extra barrels of oil or 400 billion cubic feet of gas every single day.
This challenge becomes even more pressing when one considers the stark divide between peoples and nations with access to modern sources of energy and those without. There are still roughly a billion people in the world living without access to electricity – living in a state of “energy poverty.”
This underscores the importance of the second element of our trilemma: delivering energy that is affordable.
If energy is too expensive, the global economy suffers, harming not only those seeking to escape poverty in developing nations, but also businesses and individuals in developed economies. It is vital that we avoid regulations and policies, including ineffective subsidies, which make energy so expensive that it stifles economic development and opportunity.
The third part of our trilemma is that while providing affordable energy supplies to fuel global prosperity, we must maintain a high level of care for the environment. We need solutions that both improve overall air quality, and lower CO2 emissions.
Natural gas gives us a significant advantage in applying workable global solutions to this challenge. Gas is abundant worldwide, available at scale, and with appropriate policy, it can be affordable. Just as important, natural gas produces up to 60 percent fewer greenhouse gas emissions than coal when used for utility-scale power generation, along with fewer emissions of NOx, SOx and lead. Since 2005 the largest global reduction in metric tonnes of CO2 emissions has been achieved in the United States. Emissions in 2015 from the power generation industry were around half a billion tonnes, or 21 percent, lower than in 2005 for a roughly equal quantity of demand. Switching from coal to gas in the U.S. contributed more to this reduction than all the wind turbines and solar projects brought on line in the decade. And, importantly for affordability this was achieved without subsidies or mandates.
Our industry should be doing more to trumpet these achievements. It is encouraging to see the policy steps now being implemented in China to increase gas use in generation and discussions starting in India on how they can reduce future reliance on coal.
Unfortunately other, more expensive and less effective policies have been pursued, in particular, by some in Europe. For example in Germany weak carbon pricing and $220 billion in renewables subsidies has resulted in just a 5 percent decline in ETS CO2 emissions over the decade to 2016. In the Netherlands ETS CO2 emissions are actually up by 17 percent over the last decade, largely due to coal-fired power.
So we note policy announcements last week following the formation agreement for the new government in the Netherlands, which has responded to this and proposed a carbon price floor similar to that already in place in the UK with the objective of emulating the UK’s success in reducing coal-fired power generation, and its elimination in the Netherlands by 2030.
Looking to future emissions reductions, advancing carbon capture and storage technology is an important part of ExxonMobil’s suite of research into lower-emissions solutions to mitigate the risk of climate change. We recently announced a new partnership with FuelCell Energy, Inc. to pursue a novel application of carbonate fuel cells to CCS, which could provide a more economic pathway toward large-scale CCS application globally. Deploying large-scale CCS to gas fired power plants would further lower emissions.
And with the scope of solar and wind expanding due to advances in technology, natural gas can be seen as the obvious companion fuel to renewables, providing a guarantee of reliability against intermittency and in so doing enabling a broader application of these energy sources.
The energy mix necessary to balance an internationally competitive and environmentally sound economy should be based on a diverse range of low-emission fuels, considering the benefits and limitations of each. Good policy requires an honest and open consideration of the pros and cons of each available energy source.
Yet we continue to see regulations and policies that give preferential treatment to one fuel, or one technology, over another, without accurately weighing the benefits of each.
We have also seen a return to the use of coal for power, though coal’s significantly higher emissions profile as compared to natural gas is well known. A continued reliance on coal is counterproductive in a carbon constrained environment.
Natural gas offers an option for Europe to immediately capture significant CO2 reductions. The right policy framework and transparency on carbon pricing can deliver a rapid start-up of mothballed or under-utilized existing gas capacity in the EU. Yet policy makers seem to be missing this opportunity to capture CO2 reductions right now.
A different approach to energy and environmental policy – one that promotes an increase in cleaner burning fuels, with natural gas and properly vetted renewables as obvious options – could achieve greater emissions reductions, sooner, at a lower cost to society.
Back to our theme of uncertainty. Our industry is seeing transformational change, with new technologies unlocking previously unreachable resources; new players and new pricing models; questions about which fuel sources will be most viable locally, regionally, globally. Questions about energy and trade policy. What does that mean for gas? I would argue that substituting gas for coal in power generation is most often a no-regrets step in meeting the energy trilemma.
Natural gas is abundant; with the appropriate policy it’s affordable. It’s a reliable source of supply, with no intermittency issues. And a switch from coal to gas for power provides immediate and significant emissions benefits, with potentially more as CCS technology for power plants progresses.
Of course, energy and trade policy will continue to drive the decisions investors and consumers make. With policies that support open-markets, free trade, and a level playing field, we can fully develop and deploy natural gas resources around the globe for the benefit of individuals, countries and the future. Thank you.